16 October 2012

Chairperson: Mr M Johnson (ANC)

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Meeting Summary

The Auditor-General South Africa presented their findings on the outcome of the audit process of the DAFF. The Department had only achieved 49% of its targets. There were findings on the material adjustment of financial statements and irregular expenditure. There were issues with the supply chain management as the Department did not comply with the three quote system as was the policy. The HR plan was in draft and not approved in the financial year under review but only later in the current year. Management did not prepare regular financial statements and the internal audit function was not effective. The usefulness of information was questionable and there were instances where DAFF reported something but could not support and verify it with information. The Department had a lot of vacancies which they only started to fill recently. They did have a discussion with HR management and they said that they were putting a plan in place to address it. Though the Marine Living Resources Fund (MLRF) audit report was unqualified, recent allegations and announcement by the Minister of widespread corruption put such a report in a questionable light. Ncera farms as well – though having a clean audit – had questionable performance.

The Committee agreed that the picture of DAFF and its entities was not a good one. The Auditor-General was asked to withdraw its opinion in relation to the MLRF’s clean audit and reissue a new one after taking into account the new information. The Office of the Auditor-General responded that they did not have enough information to be able to make a comment but they would invite the relevant personnel to come and explain themselves to the Committee. Irregular Expenditure and Wasteful and Fruitless Expenditure were questioned. The Office of the AG noted that R34m was part of a contract signed by the previous DG which was under investigation. Part of such expenditure as well was due to unfilled posts and too many Acting Posts. Members questioned the coordinating role of the Department saying that it was ultimately responsible for the problems within its entities as it was disbursing funds without checking if there were plans in place and if there was accountability. Treasury was mentioned as partly responsible for such failure, releasing funds without insisting on proper accounting of how previous money was spent. The Committee was in despair saying that they just did not see progress and improvement. They felt responsible for turning the situation around – failing which they would have failed their duty. There needed to be “the will” to implement transformation in Agriculture.

Meeting report

Chairperson’s opening remarksThe Chairperson welcomed everyone and announced that the purpose of the exercise would help the Department in improving its performance especially in the area of finance. He asked the AG’s Office to touch on Ncera Farms as well as they were not happy with their performance and outcomes. He said it would have been best if the AG’s presentation had happened before DAFF presentation which was conducted the previous week.

Auditor-General South Africa (AGSA) briefingMs Meisie Nkau, Business Executive for the Agriculture Portfolio, remarked that she agreed with the Chairperson that the Department should have made their presentation after AGSA’sbriefing. Their major concern were the material adjustments and increase in irregular expenditure (see document for full details of AGSA’s comments on DAFF and each of its entities). She explained that departments and entities set their own targets. If all effective processes were in place, the departments and entities should be able to plan and revise their targets similar to the process they went through for Strategic Planning. She explained that the exercise they went through to determine meeting of targets was simply counting which ones were set in the beginning and how many were achieved and then working out the percentage from that.
In terms of Ncera Farms, Ms Nkau explained that the Auditor-General used Section 43 of the Public Audit Act, where the AG opted not to audit historically non audited entities but they oversaw the process. Their interaction with the Ncera Management has been problematic as they had not been able to meet up with the Auditor-General representatives on several occasions. They did have Price Waterhouse Coopers as consultants and Ncera Farms did get a good audit result despite the poor performance.

Ms Nkau explained what a clean audit report was. Technically, in the private sector, expressing an opinion on an audit report consisted of an opinion on the financial statements of an organisation. In the public sector, three areas were looked at: predetermined objectives, financial statements and compliance. They report on factual material findings relating to compliance with rules and regulations and financial statements as they felt that they were all interrelated. A clean audit in the public sector was therefore unqualified with no findings on the financial side, predetermined objectives or compliance. The Auditor-General used these three aspects to assess five areas: Supply Chain Management, Human Resources, Information System, Service Delivery and Credibility of the information submitted. Over and above that, governance and oversight structures of an organisation needed to be in place and functioning well.

Mr F Kok, Senior Manager: AGSA, reported that although DAFF had an unqualified audit, there were findings on supply chain management as they did not comply with the three quote system as was policy. The HR plan was in draft and not approved in the financial year under review but only later in the current year. The management did not prepare regular financial statements and the internal audit function during previous years was not effective. The usefulness of information was questionable and there were instances where they reported something but could not support and verify it with information. The Department had a lot of vacancies which they only started to fill recently. They did have a discussion with the management responsible and they said that they were putting a plan in place to address it.

Ms Nkau explained that in the case of the Marine Living Resources Fund (MLRF), they had reported no findings yet there was irregular expenditure and there was a report that had come out recently that said, there was indeed a very big matter. Unfortunately the colleagues from the Western Cape who could shed more light on the matter could not make it to the meeting as they were unavailable. She said although the AG Office had processes and procedures, they were not investigative in nature and therefore the audit procedure would normally not be able to identify such matters.

Ms Nkau explained the Pyramid of Accountability as shown in the presentation as the flow of credibility of information where the bottom of the triangle was supported by three triangles which formed the foundation of the pyramid and if removed, it would collapse. She said it was important for all the employees to understand what their role was and why they did what they did.

DiscussionMr L Van Dalen (DA) said that what Ms Nkau had mentioned was a material finding which matched the public announcement the Minister had made that there was widespread corruption in the MLRF in relation to certain contracts. He said it seemed that the AG Office had been deceived. He suggested that the opinion should be withdrawn and AGSA come back with another one, saying that the Committee could not close its eyes and say its unqualified if there were matters outstanding. The media was full of reports about the matter and he was surprised they did not pick it up.

Ms Nkau said that the AGSA team from the Western Cape could come and explain the MLRF matter. She said that the AG carried out audits without fear or favour and, if there were limitations, then it would have been reported. The audits went through a quality review and the team exercised due care when auditing MLRF. There was a paragraph in the MLRF audit report mentioning the investigation.

Ms M Pilusa-Mosoane said she did not understand why the audits were unqualified when on page 11 it was stated that DAFF, Agricultural Research Council (ARC), Ncera did not follow the Public Finance Management Act (PFMA). She was confused about what was a clean audit as there was fruitless and wasteful expenditure and the vacant posts had not been filled and there were so many acting posts.

Ms A Steyn (DA) agreed with her colleagues and wondered what the AG was auditing and what were they reporting on – taken that there was so much non compliance. Looking at page 13 of the Annual Report, she asked about the R34 million irregular expenditure by DAFF and she also asked about the report on the Accounting Officer under investigation which was reflected on disclosure Note 26. She asked if there were any complete processes and investigations in DAFF. She had asked the Minister regarding disciplinary steps taken in the Department and there was no reply.

Ms Nkau said that in terms of qualifications and disclaimers, the focus of an audit was on the financial statements and it could be qualified, unqualified or have a disclaimer. Their opinion was issued on the financial report. They look at the usefulness of targets and indicators and whether they were SMART (specific, measurable, achievable and time bound). Then the AG would look at the reliability of information – whether performance information reported on was complete, reliable and accurate.

Ms Nkau continued that vacant posts could form part of irregular expenditure especially if it contravened regulations such as an official acting for a period longer than the authorised period.

Mr Abram thanked the AG’s Office for the graphic presentation and congratulated them for maintaining high standards. He referred to the pyramid of accountability and remarked that it stated clearly what a transparent government should be. He mentioned that in the recent past, there have been no fewer than six DGs in the post and one could not expect good outcomes from the department if they were in a constant state of instability. The Department needed to respond to the graphs that the AG Office had put before them and they must respond properly in writing and not like the one-pager responses of the previous week saying trivial things such as “the matter is being attended to”.

Mr Abram continued that he was thrilled to hear that the Minister of Agriculture, Forestry and Fisheries had announced the rate would be lowered to all farmers prime minus 5%, instead of prime plus 5%. He hoped that it would really be minus five and not anything less.
The Chairperson referred to the spreadsheet and said he was not impressed as only 49% of targets had been achieved. One issue that bothered him was that if an audit came back qualified, he wanted to know whose responsibility it was.

Mr Van Dalen said it was the Committee’s response.

Ms Nkau referred back to the pyramid of accountability saying it was a combined assurance model as they had identified responsibilities and accountabilities at all levels. Accountability was simply where every individual understood their contribution and responsibility with integrity, due care and ethics. Leadership should hold every individual to account as they contribute to overall achievement of outcome targets. The executive should manage the performance of the accounting officer. They empower the Committee to hold the Department accountable.

Ms Nkau said the R34m of irregular expenditure related to one contract where the Acting DG approved the contract in an irregular manner and this was related to the continuing investigations in the Department. Over the years, there had been irregular expenditure at the Department. In terms of Treasury regulations, every case must be reported and investigated and if need be, action taken against those responsible and the information must be disclosed in the financial statements on how the irregular expenditure came about and how to deal with it.

The Chairperson asked at what point must matters be referred to SCOPA.

Ms Nkau said that investigations took a long time and they usually briefed SCOPA and give them the information they needed and then it would go into their audit report in the paragraph under investigation. They agreed that the leadership has been very unstable and they had expressed their concern to the Department for a while.

The Chairperson asked the committee researcher if they had done anything on Ncera Farms. He wanted to know if DAFF was responsible for oversight of their entities, as it was DAFF that was releasing funds to them. The Treasury was at fault as it kept releasing funds even through there was no business plan. He asked about the implications of the Committee rejecting a Department’s Annual Report.

Ms Steyn agreed with the Chairperson saying that DAFF was responsible for the entity and it had failed in its role as overseer of the entity. It therefore needed to ensure there was a business plan before releasing funds.

Mr Van Dalen asked the AGSA representatives if they would have come up with a different opinion if they had had all of the information now at hand.

Ms Nkau replied that unfortunately she did not have all the facts on this matter and she would arrange for the AGSA Cape Town team to come to explain to the Committee.

[The AGSA team excused themselves as they had to attend another meeting where they had to present a similar report. The Committee continued its discussion.]

Ms Pilusa-Mosoane expressed her utter disappointment that the Committee was not winning in getting the Department to work according to its mandate and that it seemed that there so many issues with HR, and there was no progress in all the areas. There was no improvement. It felt like the Department had hit a rock and she was concerned about it.

Ms Steyn stressed her frustration with the Minister of Agriculture, Forestry and Fisheries. She said she had spoken to her as it was her job to deal with the Department and therefore she should be held responsible. She had written to the Minister but unfortunately she only received one line answers. The specific questions asked were about costs and spending. There was a lot of discussion about land reform failure and she wondered if it was the job of Agriculture to come in and assist farmers to make progress. She wanted to know where all the money that had been given to provinces had gone and what it was spent on. She wondered how the Department could move forward if they were not getting the answers.

Mr Van Dalen said that the Committee could not be happy with a report of such nature and should not give its approval to a Department that was not performing. He suggested that the Committee and the Department needed to get together to discuss how they were going to fix the problem. He said if nothing was done, they as a Committee would have failed their time in office.

The Chairperson said that Mr Van Dalen’s concern was a valid point. The Committee had tried calling Comprehensive Agricultural Support Programme (CASP). and the Provincial Departments. They were trying to deal with the issue of the National Department disbursing conditional grants to provinces who did not really account to the National level due to the separate powers given to them by the Constitution. He mentioned the farmers who were being developed – expressing his wish to see them become big commercial farmers – which was not happening. He related the story of seeing all the streets in Soweto had been tarred. Upon questioning the Mayor on how it had been done, the Mayor simply said that it was due to “the will to do it”. He wanted to see similar transformation in the field of Agriculture.
The meeting was adjourned.